Coupling an aggressive growth strategy with a bold, sustainability agenda, Kao Ppresident and CEO Michitaka Sawada is positioning the 131-year-old company for the next dozen years and beyond. By 2030, the Kao Group intends to create a global presence by creating a distinctive corporate image; build a high-profit global FMCG company that exceeds 2.5 trillion yen in net sales (1.0 trillion yen outside Japan), with a 17% operating margin and 20% ROE, respectively; and deliver a high level of returns to stakeholders. In a far-ranging interview with Happi during the AOCS World Conference on Fabric and Home Care, Sawada reviewed Kao’s recent successes, where more work needs to be done and how the company’s vision aligns with changing consumer demands.

Kao has always been a major player in the global detergent category. Euromonitor International estimates that it is the No. 6 player in the market (see chart). With 2017 sales of $9.5 billion, Kao is the No. 8 company in the global household and personal products industry, according to Happi’s estimates, but the bulk of company sales come from its home market—something that Sawada is determined to change in the years ahead. Japan accounted for two-thirds of Kao’s 2017 consumer product sales; the rest of Asia, about 17%; and Europe and the US, 15%.

Year-end results were not available at press time, but through Q3 2018, sales were up 1.6% and operating profit improved 1.3%; both results were higher than overall market gains, but the Kao team has its sights set on annual sales increases of 5%. Sawada blamed declining diaper sales in China and tough competition in the Japanese fabric and home care sector.
“The (Japanese) market isn’t growing. So we have to take the next step, which is increasing the value of our offer,” said Sawada. “Also, we will focus on the environment by reducing packaging and improving product performance so that it takes less time to clean, using fewer resources.”

At the same time, Kao’s CEO is determined to grow internationally.

Beyond Borders

“In the past 10 years, our Asian business has quadrupled, while sales have been flat in Europe and the US,” explained Sawada, who said China and Indonesia are Kao’s largest markets outside Japan. “Going forward, I want to focus on the US and Europe.”

As the company expands outside its home market, Sawada will eventually turn his attention, in order, to India, Eastern Europe, the Middle East, Latin America Africa.

For many Europeans and Americans, sustainability has become a critical factor in purchasing decisions. In addition to ingredient transparency, consumers are taking a hard look at product packaging. In recent years, Kao has been active on a number of fronts. Enhancing product performance and compacting products reduces the amount of product per use, cuts material and energy use and reduces waste after product use. One example is Ultra Attack Neo, which is not only concentrated, but is also available in pouch refills. Kao's first refill product was launched in 1991; as of December 2017, its number of refill products reached 289. The increased use of refill products reduced Kao’s plastic use by 907,000 tons in 2017. Kao’s new Smart Holder, which is designed to hold a variety of refill packs, even contains 15% plant-based material by container weight. It’s all part of the company’s commitment to the 4Rs: fundamentally “Reduce” the size of products and packaging, switch to “Renewable” raw materials, “Reuse” materials and “Recycle” materials.

With its emphasis on environmental issues, in mid-2018, Kao was included in the global stock indices for environmental, social and governance (ESG) investing, which followed the company’s decision in 2017 to launch its Mid-term Plan 2020, which is themed “Transforming Ourselves to Drive Change.” Kao’s ESG Division is led by Dave Muenz.

New Year Optimism

As Kao moves into the new year, Sawada is optimistic about 2019.

“There is no slowdown in the global economy; we don’t see any of that,” he insisted. “Right now, the market is active as it undergoes change from mass to more personalization, but nothing is slowing down.”

In fact, Sawada views personalization as an opportunity. Kao researchers are gathering data to suggest the most appropriate shampoo or skin care formula for its customers. To produce these formulas, Kao formed a dedicated artificial intelligence (AI) team nearly a year ago.

“For new product development and manufacturing with 1000 different raw materials, we will use AI and robotics. In time, we will see a phenomenal difference,” he predicted.

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